Coming to grips with economic theory and the economic experience

Economics is often known as an arcane science, and rarely more so for Russians who over the last 20 years have experienced economic changes as profound as any nation.

Business RT spoke with Anatoly Kholopov, dean of International Economic Relations at MGIMO, about the perception of economics study, and its role in crafting national responses to economic change.

RT: What comprehension problems, as you see it, confront today’s economic theory students?

AK:“The main problem is possibly the fact that economic theory is expected to provide unequivocal answers to difficult issues that the modern economy is posing to individuals and society as a whole. This is why a student that has his first taste of the economic theory ends up surprised by the existence of dissimilar concepts, schools, and currents that not only differ from one another but also engage in a pointed controversy.

Common sense, it would seem, suggests that a probe is in order into who is right and who is wrong, if different theorists, while analyzing one and the same problem, come up with different explanations. But the wish to find the only one correct theory and to brand all the rest as erroneous is likely to lead to perilous consequences. This is why the important thing, as you delve into the economic science, is to understand that the diversity of theories is a natural consequence of the complexity of the surrounding world of economic relationships.

Anatoly Kholopov, dean of International Economic Relations at MGIMO

The economy, being a result of people’s conscious activities, is constantly changing, and so is economic science. Economic life is under a powerful impact from social, political, psychological, religious and ethnic factors. And it reflects a country’s historical peculiarities, the existing traditions and moral principles, the long-standing rules of behavior and legal norms. In other words, economy is too complex an organism to be evaluated and explained in a unique fashion.”

RT: To what extent, do you think, is the economic theory taught at MGIMO and other leading national universities applicable to Russian realities?

AK:“Modern economic theory is certainly applicable to Russian realities (like to those of any other nation) but not in the sense that on opening an economic theory textbook a reader will find an analysis of Russia’s economy or some tips on how to solve certain specific Russian problems. To quote the great British economist John M. Keynes, an economic theory is not a set of ready-made recommendations that can be directly used in an economic policy. It is sooner a method than a teaching, an intellectual tool, a mental technique, which can help a skilful user to come to the right conclusions. Knowing the economic theory provides one with analytical tools that lack any ethnic specifics.”

RT: There were many events in this country’s economic life during the last 20 years. How, do you think, this history influenced the Russians’ perception of economic realities?

AK:“Of course, we have learned how to live with inflation, and it is now in the ordinary run of things for us to know that crises and unemployment are not only elsewhere but in this country as well. But this is not perhaps the main thing. For many years the public in this country lived in a situation where its economic life was totally dominated by the state, while each particular person was almost of no account. Even now one feels a strong temptation to put the blame for all our problems and setbacks on the state and its individual leaders. But 20 years spent amid an emerging market economy has resulted in inducing (just inducing!) a process of gradual change in public mindsets. It’s a good thing if the state gives you some help, but it’s you who is the ultimate decision-maker and you should bear the responsibility for whatever decisions you initiated.”

RT: How do you estimate the degree of appropriateness and timeliness in official reactions to all manner of economic challenges (like a surge in prices for raw materials and food in late 2010)?

AK:“It must be admitted that over the last few years the governmental economic policy has grown markedly more well-conceived and appropriate than in the 1990s, when it was characterized by impulsiveness and inconsistency. We can’t say, of course, that the present-day policy is OK in all respects, but I’d like to mark what I see as its very important characteristic. What I mean is combining strategic objectives that the state poses and seeks to address with prompt reactions to current problems. There are no basic grievances in respect of governmental interventions. Our big hope is that they’ll have enough political will and economic wisdom as they pursue their long-term economic policy. The objectives are OK, but they need to be achieved.”

RT: What main economic objectives, do you think, should be addressed by Russia’s present generations in order to enable this country to develop dynamically?

AK:“It’s hard to be original in answering this question. This country must break the vicious circle of dependence on oil and gas and raw material exports that, regrettably, has only intensified during the last few years. Russia is not unique in this sense; many countries have rich natural resources, many countries are confronted with the so-called “raw-material curse,” or the “Dutch illness,” where mining industries soak resources (financial, labor, intellectual) from other industries, thereby inducing stagnation. As is evident from the world record, there are no simple or quick fixes. But the same record indicates that the economy’s mineral slant will persist if you count entirely on the market competitive mechanism. Here you can’t do without a well-conceived, structural and industrial state policy.”